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Spiderman on Net Neutrality.

There are three parties to the “net neutrality” debate. There are Internet Content Consumers (ICCs, individuals and businesses); Internet Content Providers (IPCs); and Internet Service Providers (ISPs). Since the ISPs connect the ICCs with the ICPs, they’re the subject of proposed regulations.

Unlike the public highways, the Internet is private property. To what degree is it legitimate for government to regulate private property? Should the Internet be treated like a utility or like normal company selling goods or services? A utility bills a customer for how much of the service or good that s/he consumes. It does not distinguish between customers, nor is it involved in competition with other providers, nor does it inquire into what purpose s/he uses the service or good.[1] A normal company competes with other companies for customers by offering new and attractive products at as low a price as possible. Which of these business forms does the Internet most closely resemble?

The Obama Administration argues that the Internet is like electricity, a utility. The President professes to fear (or serves as the mouthpiece for ICPs who fear) that ISPs will be able to “restrict the best access or pick winners and losers in the online marketplace.”

Internet Content Providers are not all equal in that some of them (Netflix, Hulu) require a lot more bandwidth than do many others. Internet Service Providers want to be able to charge these customers a different price than they charge other users. They analogize on-line content to cable television content. Being able to charge differential rates has led to an explosion of widely desired content in cable television (HBO for example). The same will happen with on-line content.

Internet Content Consumers and Internet Content Providers both hate this idea. Customers see the ISPs as positioning themselves to gouge money out of consumers by forcing them to pay for “packages” that include content that they don’t want or to pay premium prices for content that they do want. ICPs see the ISPs forging alliances with whoever has the deepest pockets, while squeezing anyone who doesn’t have great wealth yet out of the “fast lane” and into a “slow lane.”

On the other hand, differential pricing and “congestion” pricing are both well-established practices in business, government, and education. The toll on the bridge over the Delaware-Chesapeake Canal goes up on the week-end; colleges discount their price to students by providing different amounts of financial aid to different students; stores have sales.

The Internet is one of the engines of the future growth of the American economy. The Internet is not a “mature” industry or technology. Therefore the single most important issue is to decide what policy best encourages productive investment in and maximum expansion of the Internet. ISPs picking and choosing between customers sounds like a prescription for favoring established interests over new interests in a segment of the economy that is undergoing rapid development, innovation, and change. Ponderous—and perhaps politicized or paralyzed—government regulation sounds like a prescription for driving away badly-needed investment.